We're Interested To See How Prophecy International Holdings (ASX:PRO) Uses Its Cash Hoard To Grow

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Prophecy International Holdings (ASX:PRO) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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When Might Prophecy International Holdings Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at December 2024, Prophecy International Holdings had cash of AU$9.1m and no debt. Importantly, its cash burn was AU$1.2m over the trailing twelve months. That means it had a cash runway of about 7.8 years as of December 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

Check out our latest analysis for Prophecy International Holdings

Is Prophecy International Holdings' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Prophecy International Holdings actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. In fact, operating revenue has stayed pretty steady over the last twelve months. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Prophecy International Holdings has developed its business over time by checking this visualization of its revenue and earnings history.

Can Prophecy International Holdings Raise More Cash Easily?

Notwithstanding Prophecy International Holdings' revenue growth, it is still important to consider how it could raise more money, if it needs to. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Prophecy International Holdings' cash burn of AU$1.2m is about 3.4% of its AU$34m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is Prophecy International Holdings' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Prophecy International Holdings is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. An in-depth examination of risks revealed 1 warning sign for Prophecy International Holdings that readers should think about before committing capital to this stock.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.